Interest-Only mortgages
With an interest-only mortgage you only pay off the interest on the loan and none of the outstanding debt until the end of the term.
Your monthly repayments are usually made up of three parts:
- Interest on the capital you owe the lender
- Life insurance
- Contribution to an investment plan designed to pay off the outstanding capital at the end of the mortgage term
Interest-only mortgages usually have lower monthly payments than a repayment mortgage but are inherently more risky. There is no guarantee that the investment plan you choose will generate sufficient capital to pay off the outstanding debt at the end of the mortgage term. However, should your investment be successful, you may be able to pay off your debt and have a lump sum left over, or even clear the debt in advance of the expected date.
